Buying a boat in an LLC

[belizesailor]

Originally Posted by denverd0n

That's "Flori-DUH!" Or "The Gun-shine state." (Silly nicknames for my state don't get my panties all in a wad, so call it whatever you want.)

Sorry if anyone took offense, but really, criticizing someone for referring to California as "Cali" is pretty much the very definition of pointless nit-picking. I was simply trying to highlight the absurdity of getting upset about that. Maybe I should have added a smilie.

Well...if anywhere is deserving of a silly nickname...its "Cali". 😆

[nextis12]

Originally Posted by denverd0n

That's "Flori-DUH!" Or "The Gun-shine state." (Silly nicknames for my state don't get my panties all in a wad, so call it whatever you want.)

Sorry if anyone took offense, but really, criticizing someone for referring to California as "Cali" is pretty much the very definition of pointless nit-picking. I was simply trying to highlight the absurdity of getting upset about that. Maybe I should have added a smilie.

For what it's worth, born and raised in "Cali" and no offense taken. I do think all all the California hate is a huge bummer. We send more tax dollars to the Fed Government then we get back, silicon valley is where all the innovation is coming from, we are working hard on not polluting the air everyone breaths. Why all the hate??

Maybe it's the lack of multihulls on west coast. More catamaran sailors from Cali that might do the trick

[belizesailor]

Originally Posted by nextis12

...
Maybe it's the lack of multihulls on west coast. More catamaran sailors from Cali that might do the trick

Nah, you get a really big credit for the Hobie family.

[DotDun]

Originally Posted by nextis12

For what it's worth, born and raised in "Cali" and no offense taken. I do think all all the California hate is a huge bummer. We send more tax dollars to the Fed Government then we get back, silicon valley is where all the innovation is coming from, we are working hard on not polluting the air everyone breaths. Why all the hate??

Maybe it's the lack of multihulls on west coast. More catamaran sailors from Cali that might do the trick

No hate here, used to live in California, it's a beautiful state. The problem with it, IMHO, too many people, too many taxes, too much government.

Plus, I like the Florida/Bahamas cruising grounds better!

[CSY Man]

Originally Posted by DotDun

No hate here, used to live in California, it's a beautiful state. The problem with it, IMHO, too many people, too many taxes, too much government.

Plus, I like the Florida/Bahamas cruising grounds better!

Me too, Florida and the Bahamas any day.
California is nice in small doses but too expensive, too crowded, Air is too dry and the ocean too cold.

[nematon785]

Originally Posted by marlin driver

Owning a boat in an LLC isn't rocket science. You obviously haven't had positive experiences using professional services, but many of us have fared much better.

Buy a $300K boat in CA and you pay $24K in sales/use tax. Buy the LLC that owns that boat and you pay no tax on the purchase, but it costs you $800/yr for the LLC. Which do you prefer? It is legal and not complicated. Your comments about tax officials walking the docks is relevant to personal property tax, which is paid at roughly 1% of the boat value ($3K per year in our example). That is paid regardless of how you hold title to the boat, as long as it resides in CA.

For a boat with substantial value, buying the LLC that owns it is a big bonus due to the tax savings. Selling that LLC and boat to a knowledgable buyer can bring you a premium for the same reason. The liability protection debate is not as important to me because I carry plenty of insurance coverage.

The LLC that holds the boat exists to hold the boat and has no other assets or business, so there aren't other issues to complicate things.

I also hold investment properties in LLCs and limit each entity (LLC) to a single property for these reasons. Very common arrangement and entirely legal, including from a tax standpoint.

You might consider saving your criticism for topics on which you have some knowledge.

Quite a lot of what you say makes quite a bit of sense, and I see how concern for tax liability can drive one to develop a business to own and manage assets.

The root of my criticisms and concerns is based in added complexity, and how easy it is for a person who is not well versed in how this is done to make a mistake. These mistakes are not necessarily fatal or whatever, but all the advantage can disappear very quickly.

I would really like to learn, not sarcastic or anything, I would like to benefit from your knowledge base (If you are willing to share) When you make port in a foreign country, or are boarded in a foreign country, and your identification and vessel registration are requested, is it pretty straight forward to establish YOU have permission to sail the LLC's vessel on the high seas and it is not stolen? What documentation chain do you show to establish your right to skipper the vessel? I'm sure this is routine and very common on commercial vessels, but...Well, I would like to learn.

Another item of interest is when you have work done by a yard, do you pay with a check from the LLC account? naturally any lien filed will go against the LLC, (Who is titled owner) but do you need to have a complete separate and clear entity that maintains, operates and is liable for the vessel? Do you transfer money to the LLC account from your personal account for expenses? How do you do that? simple transfer or do you need a receipt? can you be listed as an advisor or manager who is allowed to fix, maintain, and provision the vessel? Do you need to be certified somehow to be a professional captain, or can you just sail the vessel and say (The owner says it is okay if I drive this thing)?

I know this sounds cheeky, but honestly I am curious, not trying to be sarcastic, I really want to learn. Thanks.

[nematon785]

A couple more quick question: Why incorporate in California? What is the benefit to basing your business out of California? I only ask because I would be tempted to incorporate in a location that is more beneficial to a LLC, and I will admit, its been a while since I checked but it seems Delaware is notoriously good location for this. It is clear I don't know jack squat, and now we can all learn (if you are willing to explain the methods)

Is there a reason why one would choose to buy a California based LLC rather than accept possession offshore and maintain the vessel home port in a State that would be more beneficial and register with the USCG rather than a state? Or even in Langkawi as opposed to the USCG?

Clearly Sales tax is a big concern. Any suggestions on how to protect myself and or my LLC if sales tax is demanded and questions come up from a taxing authority? Simply refuse? or do I need to hire a lawyer (or does my LLC hire a lawyer?)

At what price point does it become worth wile to add this complexity? Obviously 300K and up gives a large tax savings, and most at this price point would have additional assets worth protecting, so at 100k, the boat is my home, I have nothing else asset wise, is it still worth it? What about 50k?

[nextis12]

Originally Posted by nematon785

Quite a lot of what you say makes quite a bit of sense, and I see how concern for tax liability can drive one to develop a business to own and manage assets.



The root of my criticisms and concerns is based in added complexity, and how easy it is for a person who is not well versed in how this is done to make a mistake. These mistakes are not necessarily fatal or whatever, but all the advantage can disappear very quickly.



I would really like to learn, not sarcastic or anything, I would like to benefit from your knowledge base (If you are willing to share) When you make port in a foreign country, or are boarded in a foreign country, and your identification and vessel registration are requested, is it pretty straight forward to establish YOU have permission to sail the LLC's vessel on the high seas and it is not stolen? What documentation chain do you show to establish your right to skipper the vessel? I'm sure this is routine and very common on commercial vessels, but...Well, I would like to learn.



Another item of interest is when you have work done by a yard, do you pay with a check from the LLC account? naturally any lien filed will go against the LLC, (Who is titled owner) but do you need to have a complete separate and clear entity that maintains, operates and is liable for the vessel? Do you transfer money to the LLC account from your personal account for expenses? How do you do that? simple transfer or do you need a receipt? can you be listed as an advisor or manager who is allowed to fix, maintain, and provision the vessel? Do you need to be certified somehow to be a professional captain, or can you just sail the vessel and say (The owner says it is okay if I drive this thing)?



I know this sounds cheeky, but honestly I am curious, not trying to be sarcastic, I really want to learn. Thanks.

Good question, Does anyone know, how does it work when you sail into a foreign port and your US Coast Guard Doc list an LLC as the owner?

[belizesailor]

Originally Posted by nextis12

Good question, Does anyone know, how does it work when you sail into a foreign port and your US Coast Guard Doc list an LLC as the owner?

Yes. My boat is in an LLC and have crossed borders in many others with corp ownership.

Authorities usually dont ask, but if they do you want a letter of permission authorizing you to operate the boat. Fancy letter head and a corporate seal help make it look official.

I keep a few on board with the ships papers, but have only had need for them a few times.

[14murs14]

Originally Posted by belizesailor

Yes. My boat is in an LLC and have crossed borders in many others with corp ownership.

Authorities usually dont ask, but if they do you want a letter of permission authorizing you to operate the boat. Fancy letter head and a corporate seal help make it look official.

I keep a few on board with the ships papers, but have only had need for them a few times.

Lot's of rubber stamps and embossed seals always seem to impress border types.
The reality is that most bigger ticket items, i.e. large yachts, private jets....are not going to be titled or registered in the name of an individual. It's not going to be the first time a country's border agents will see a vessel owned by a corporation and operated by an individual.

[leboyd]

Originally Posted by Scot McPherson

buy the boat...if you want to put it into an LLC, you are better doing it on your own. Without hiring an investigator, you really will not know what you are buying when you buy a company. It's called Due Diligence....do your Due Diligence...or just buy the boat and start your OWN LLC, that you know is in the free and clear if that's what you want to do.

Nail on the head... Never buy a company if you can buy the assets. Companies come with histories. While not all histories are bad, and the likelihood of a negative affect on you because of the previous owners is low, it's worth the few dollars to remove the risk (IMHO).

[14murs14]

Originally Posted by leboyd

Nail on the head... Never buy a company if you can buy the assets. Companies come with histories. While not all histories are bad, and the likelihood of a negative affect on you because of the previous owners is low, it's worth the few dollars to remove the risk (IMHO).

Boats come with histories and there's no concept of title insurance. An LLC isn't going to appreciably increase these "histories" and we're talking about tens of thousands of dollars in savings. If you're familiar with the concept of risk adjusted returns, do the math. Buying the assets to avoid a very small risk, much of which isn't mitigated by that strategy anyway, when your risk with the LLC is limited to it's assets, just doesn't pencil out unless you are uber paranoid. Just as an example, if you opt to pay sales tax in CA vice accept the liability of buying the LLC then you're assigning a 7.5-10% (depending on your locality) chance that an LLC will come with a history that will eat up 100% of it's value. There's just no way that the chances are that high. I understand fear is a powerful driver of irrational decisions and a boat is a big purchase, but let's be rational here!
BTW, in the private equity world where people do this for a living, there's not such saying "Never buy a company if you can buy the assets." All things being equal you'll buy the assets vice the company, and you may pay a slight premium for buying the assets vice the company, but that premium isn't going to be 10% even with a fairly complex operating company that actually could have hidden liability, let alone an LLC that holds a single asset with almost no chance of hidden liability.

[CarlF]

I don't know about the tax issues but for insurance:

The insurance policy must name the LLC. The LLC suffers the loss in an accident. The insurance company won't write a check to anyone but the name on the policy who suffered the loss.

The LLC won't offer a liability shield if you or your wife are aboard when the accident happens. The injured party will sue both you and the LLC. Since you are the master, you will likely be as liable as if you owned the boat without an LLC. Be sure you and your wife are named as additional insureds for liability on the boat policy. Also list the boat on any umbrella policy you might have.

[marlin driver]

Originally Posted by leboyd

Nail on the head... Never buy a company if you can buy the assets. Companies come with histories. While not all histories are bad, and the likelihood of a negative affect on you because of the previous owners is low, it's worth the few dollars to remove the risk (IMHO).

You are missing the point here. You only avoid the sales/use tax on the purchase if you buy the LLC that owns the boat, and not buy the boat directly. If you buy the boat and form the LLC, then you have to pay the tax plus you have to pay the costs of the LLC. You then have all the costs and few of the benefits (you may still have some liability protection, if that is a concern).

[14murs14]

Originally Posted by marlin driver

You are missing the point here. You only avoid the sales/use tax on the purchase if you buy the LLC that owns the boat, and not buy the boat directly. If you buy the boat and form the LLC, then you have to pay the tax plus you have to pay the costs of the LLC. You then have all the costs and few of the benefits (you may still have some liability protection, if that is a concern).

He understand that, the word "liability" just has two meanings in this context. Leboyd is talking about your liability to claims against the LLC, for example the LLC could owe someone money, and if you took over the LLC then you'd also take over that liability. I'd maintain that the risk of this is almost nil, but it is a risk. And keep in mind this liability will never exceed the value of the assets in the LLC, in this case the boat.
When you're thinking of "liability" you're probably thinking that the LLC shields the owners from liability around anything that happens with the boat beyond the value of the boat itself. This is also true to an extent, but this thread isn't about that. The thread is about the fact that you can avoid paying sales tax when you buy an LLC that owns a boat as opposed to buying the boat itself, that is all.
You can get the limited liability of an LLC just as easily by setting one up to buy the boat as by buying a boat already in an LLC, but that's not the point of the OPs question and I think many are confused on that point.